A look at statistics showing how the insurance industry fared in consumer class action settlements.
By Linda Koco
What makes for a successful life insurance and annuity company? A lot of advisors would like to know, particularly when considering contracting with, or recommending, a carrier. Insurance companies want to know too, particularly when benchmarking and setting strategy.
So what are the markers?
Researchers at Conning have been peeling back the onion on this for several years. Among the intriguing findings is that most of the small companies that Conning rated as successful had at least 99 percent of their direct premiums coming from individual life and annuity products, Terence Martin, director of Conning’s life-annuity research team, told InsuranceNewsNet.
Furthermore, most of those carriers received 80 percent of their premium from annuities.
A related finding is that, once the carrier of any size finds its optimal product mix for its own markets and distribution, the successful carriers tend to stick with that mix, Martin said.
Focus on successful
The Conning study examined 217 companies in all — 96 classified as micro, 58 as small, 37 as medium and 26 as large.
Individual Life and Annuity Carriers
2014 Conning Study
Individual Direct Premium Rankings
Less than $20 million of assets and less than $2 million of surplus.
Neither life or annuity direct premium ranked above 126
Less than $2 billion of assets or less than $200 million of surplus, but above micro levels
Direct premium or life or annuity or both ranked between 26-125, but neither ranked in top 25
Larger than small
Neither life or annuity direct premium ranked in top 25
Direct premium or life or annuity or both ranked in top 25 regardless of description
Although smaller in number, the large carriers pack the biggest wallop in terms of market share by direct premium. The big carriers took an 83.8 percent market share, based on 2013 premium. By comparison, the midsized carriers came in at 13.1 percent, the smalls at 2.9 percent, and the micros at 0.2 percent.
The report gives the most attention to identifying success at the large, mid, and small carriers, but said the strategies uncovered at successful companies in those categories could be appropriate for companies of any size.
Conning was choosy in selecting the companies qualifying as “successful.” Only 15 of small through large carriers made the cut, as shown in the chart.
Successful Companies In 2014 Conning Study
Individual Life and Annuities
The success classification was based on analysis of numerous factors, using data going back over 10 years, Martin said.
The criteria include not only size of company (based on capital, assets and rankings of direct premium by products) but also operating margin, return on surplus, premium growth and sales. Then the researchers sifted for commonalities among the top performers.
Distribution: One of the common characteristics of the 15 successful carriers has to do with distribution.
Successful companies generally have higher distributor productivity than their respective overall groups (whether small, medium or large), Martin said. “They seem to be selling more efficiently than their overall groups. Put another way, they are not paying as much to get the dollars in the door.”
When evaluating distribution, the researchers removed from the analysis the companies that only sell through employees, since such carriers do not use distributors, or do not do so in the traditional sense.
“We also looked at whether the companies differed significantly between those that sell through independent agents versus captive agents,” Martin said. “We found no particular identifying pattern. That means the channels the carriers use don’t influence distribution productivity. It’s something inside the successful companies that is impacting this.”
The productivity assessment was based on premium dollars generated. If a company were to lower commissions — as a number of carriers did during the post-recession period — that could impact carrier efficiency, Martin allowed. But that factor is not showing up in the data.
Product focus: As noted earlier, the life and annuity carriers that Conning deemed as successful had a strong focus on maintaining a consistent product mix. But the mix has shifted, at least for the small carriers, toward greater sales of annuities in the last year.
In Conning’s 2014 report, 80 percent of premiums written by the successful small companies were from annuities, and just 20 percent from life insurance, Martin said. That’s up substantially from the 49 percent of annuity premium in the previous year’s report, where life insurance had the edge at 51 percent.
This is not an apples-to-apples comparison. “Only three carriers in the 2014 list of successful small companies — Bankers Life, Liberty Bankers Group and Tennessee Farmers — were also in last year’s list,” he said, noting that companies that get on the list come and go over the years.
For now, though, annuities are the focal point for many successful carriers. That’s for the successful midsized and large carriers as well as the successful small carriers, the Conning executive said.
For instance, at the five successful midsized carriers, annuity focus was dominant both this year and last, by 70 percent each year.
And at the three successful large carriers, annuities ruled the day in 2014, with 91 percent of their business focused on annuities and just 9 percent on life insurance. By comparison, in last year’s report, only 64 percent of the large carriers focused on annuities while 36 percent focused on life insurance.
Martin attributed the decided shift toward annuities to carriers meeting consumer demand for the safety of fixed annuities in the post-financial-crisis period as well as carriers responding to the growing popularity of fixed index annuities.
Single or flex premiums: At the seven successful small companies, there was less dependence on single-premium sales than among small groups overall. But among successful large companies, single-premium business was larger overall.
That’s to be expected, Martin said. Single-premium business can inject more volatility into sales than small companies desire, he explained. “If a small company brings in in a lot of single-premium cases one year but not the next, that can make it harder to manage the business than if there is a continuing flow of flexible premiums coming in year after year. Avoiding that volatility makes it more likely that the smaller companies can succeed.”
By comparison, large carriers are big enough to absorb any volatility associated with single-premium sales.
But here’s an unexpected wrinkle: Mutual life insurance companies tend to have an advantage on the single-premium side of things. If policyholders use the dividends from their single-pay life policies to purchase paid-up additions, he said, those additional purchases count as single-premium sales, thus creating a continuing stream of sales. However, because policyowners also can change out of their paid-up additions option later on, there is still some volatility here.
Large life policy size: The researchers found that successful small, midsized and large carriers issue life insurance policies in the same range of face amounts. That means that “success can be found issuing policies of a broad range in size, and that it does not require chasing ever larger policies,” the report said.
Not a cookbook
The study is not a cookbook recipe for others to follow. For instance, although there are three fraternals on the successful small company list this year, that doesn’t mean that other companies need to become a fraternal or do what the fraternals do in order to be successful, Martin said.
Rather, he said, “look at the traits of the successful companies. See what might be applied or what ideas they suggest for taking a different tact to, say, increase organic growth.”
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at email@example.com.
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